ATK
New Delhi [India], August 9: Investors can generate fixed income by investing in debt funds. These funds invest in fixed-income securities like treasury bills, corporate bonds, commercial papers, government securities, and other money market instruments. These instruments have a fixed maturity date and interest rate, and they are not affected very adversely by market volatility. This is why debt fund investments are also considered to be low-risk investments.
Key features of debt mutual funds –
Here are the key features of debt mutual fund investment schemes:
Different types of debt mutual funds:
You can choose from a variety of debt mutual funds to achieve your investment goals. Each fund caters to a specific requirement of the investor –
* Liquid funds offer high liquidity to investors: Often cited as a possible alternative to savings account FDs, liquid mutual funds offer high liquidity and moderate returns to investors. They have a maturity period of at most 91 days and are good short-term investments.
* Money market funds are ideal for investors seeking low-risk securities: These debt mutual fund schemes have a maximum maturity of 1 year. They are ideal for investors who wish to invest in low-risk debt securities for the short term.
* Investors looking to invest for the very short term can consider overnight funds: Overnight funds invest in debt securities that have a maturity period of 1 day. These funds are considered to be extremely safe since their credit and interest rate risk is negligible.
* Low-, short- and medium-duration funds invest based on varying Macaulay durations of the schemes: The Macaulay duration of a fund indicates the time it takes for an investor to recover their investment in bonds. An ultra-short duration fund invests in money market instruments whose Macaulay duration is between three and six months. Low duration funds invest in debt securities with a Macaulay duration of 6-12 months. Short and medium duration funds, on the other hand, invest in debt securities that have a Macaulay duration of 1-3 years and 3-4 years.
* If you wish to invest primarily in corporate bonds, you must consider credit risk funds: A credit risk debt fund invests 65% of its investible corpus in floating rate instruments. These funds pose a low interest rate risk to the investor.
You must invest in a debt mutual fund after assessing the category of the fund, your investment objectives, and using an online mutual fund returns calculator.
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